Amortization Using Issue Spread / Negotiation Spread

Use

As part of this amortization procedure, the amount to be amortized is divided into issue spread and negotiation spread .

The issue spread is the difference between the repayment amount of a bond or loan, and the amount resulting from compounding the issue amount up to the purchase date (nominal amount x issue rate).

The negotiation spread is the difference between the amount that is derived from compounding the issue amount of a bond or loan (nominal amount x issue rate) to the purchase date, and the amount at which the bond or loan is sold.

Overview: Issue Spread and Negotiation Spread

This graphic is explained in the accompanying text.

This function can be used with the following position management categories:

Securities/Loans/Money Market without index-linked bonds (BFT1)

Index-Linked Bonds (BFT2)

Securities/Loans with Installment Repayment (without index-linked bonds) (BFT8)

The issue spread is cleared in accordance with the settings in the amortization procedure that uses the acquisition value that is modified by the negotiation spread. It uses the Amortization position component (1007).

The following options are available for the negotiation spread:

The negotiation spread is amortized using the straight-line method.

It uses the position component Deferral Item for Purchase Value (1010) and during amortization, the amount is transferred on a linear basis to the position component Amortization Using Negotiation Spread (1019).

The negotiation spread is amortized on an exponential basis as part of the amortization procedure.

It uses the position component Deferral Item for Purchase Value (1010) and during amortization, the amount is cleared on an exponential basis and transferred to the position component Amortization Using Negotiation Spread (1019)

The negotiation spread is not amortized.

Only the issue spread is amortized. The negotiation spread uses the position component Deferral Item for Purchase Value (1010) and is written off as net income at the end of the term.

Prerequisites

If you want to use this amortization procedure, you need to choose one of the setting options listed below. To do this, in Customizing for Treasury and Risk Management , choose Transaction Manager ® General Settings ® Accounting ® Settings for Position Management ® Key Date Valuation ® Define Amortization Procedure. Choose Other Components, and then one of the following options:

Negotiation Spread, Linear

Negotiation Spread, Exponential

Negotiation Spread without Amortization

In the following IMG activities, you need to specify, assign, and control the required update types:

Define Update Types and Assign Usages

Assign Update Types for Derived Business Transactions

Assign Update Types for Valuation

Define Account Determination